Daily Edition

Gamers will be able to buy and sell virtual items for real cash in upcoming online strategy game.

The real world and the game world will further converge this fall when Blizzard Entertainment, a division of Activision Blizzard, releases its latest online PC game, Diablo III.

The Irvine, CA-based developer of the popular World of Warcraft massively multiplayer online (MMO) game franchise has unveiled new virtual “auction houses” that will be incorporated into the much-anticipated fantasy adventure game. For the first time, players will be able to buy and trade virtual goods using real cash, or exchange in-game items for real cash, through a secure system overseen by Blizzard.

Essentially, Blizzard is creating an in-game Ebay system that it will oversee, and take a nominal fee for each transaction. Players will be allowed to buy and sell items using in-game gold, or purchase and sell virtual goods using real cash. Players can sell in-game items and then use that money towards subscription payments or other in-game purchases, or cash out and pay a fixed percentage-based withdrawal fee. An unannounced third-party financial institution will handle transfers of virtual sales to players’ real bank accounts.

Rob Pardo, co-founder of Blizzard and executive producer of Diablo III, said no one has done this before.

Acquiring new gear for in-game characters has always been a big part of the Diablo gameplay experience, which allows up to eight players to join a party and quest online through the world of Sanctuary. Because of this, players have found a number of different ways to trade and otherwise obtain items both within and outside of the game. Many of these methods were inconvenient and either tedious (for example, repeatedly advertising for a desired trade in Battle.net chat channels and waiting for responses) or unsafe (e.g., giving credit card information to third-party trading sites).

“With Diablo III, we’re introducing a powerful auction house system that will provide a safe, fun, and easy-to-use way for players to buy and sell the loot they find in the game, such as weapons, armor, and runestones,” said a spokesperson for Blizzard. “Two different versions of the auction house will be available: one based on in-game gold, which players acquire through their adventures, and one based on real-world currency.”

This new business model will open up another revenue stream for Blizzard and also help combat the illegal black market sales of virtual goods, which is big business in Asia. Dubbed “gold farming,” individuals and organizations hire gamers to play popular online games like World of Warcraft to accrue rare in-game items or high-level characters and then sell those virtual items to gamers.

According to David Cole, president of DFC Intelligence, the sale of legal virtual goods will reach $1 billion this year for English-speaking countries. That’s up from $250 million just two years ago. When factoring in the rest of the world, virtual goods will take in $6 billion total this year.

Game publishers in Asian countries, especially China, rely on the sale of virtual goods to offset piracy. Games are given out for free and then publishers recoup their investment by selling in-game items.

“It’s a big market, and it makes sense that someone would try to legitimize gold farming,” said Michael Pachter, video game analyst, Wedbush Morgan Securities. “It should be a good revenue stream for Blizzard.”

While there are other companies out there that allow for gamers to purchase in-game items with credit cards, retail cards, and cash. Blizzard is offering gamers a legitimate way to turn those long hours spent gaming into a way to earn money. This is part of a growing trend toward the acceptance of spending real money to further enhance a virtual game world experience.
“Gamers are investing real money in virtual items in Farmville, World of Warcraft, and other online games, to the point they are filing lawsuits to establish ‘ownership’ of these virtual goods,” said Pietro Macchiarella, research analyst, Parks Associates. “The enormous player base, availability on multiple devices, and the introduction of instruments such as Facebook Credits contribute to growing revenues.”

While Blizzard still has a strong base of gamers playing StarCraft II and World of Warcraft, the game publisher has lost 600,000 World of Warcraft subscribers since October 2010. World of Warcraft still has a healthy subscriber base of 11.4 million players, but it has lost roughly 5 percent of its players from its high of 12 million subscribers in October 2010.

Pachter believes if these new cash auction houses succeed for Diablo III, Blizzard will introduce a similar model in World of Warcraft in the future. This will help the game publisher to offset any losses from subscription revenue.